The Lucas Critique , Policy Invariance and Multiple Equilibria

@inproceedings{Farmer2007TheLC,
  title={The Lucas Critique , Policy Invariance and Multiple Equilibria},
  author={Roger E. A. Farmer},
  year={2007}
}
The Lucas Critique of Econometric Policy Evaluation argues that the parameters of econometric models are subject to theoretical cross-equation restrictions which follow from the fact that the endogenous variables of the models are chosen optimally by forward-looking agents. In this paper I argue that these facts alone are insufficient to generate such restrictions. I present an example of a model in which there exist multiple stationary rational expectations equilibria one of which is supported… CONTINUE READING